2-1 Chapter 3 Supply Chain Drivers and Obstacles Supply Chain Management

2-2 Drivers of Supply Chain Performance uFacilities –places where inventory is stored, assembled, or fabricated –production sites and storage sites uInventory –raw materials, WIP, finished goods within a supply chain –inventory policies uTransportation –moving inventory from point to point in a supply chain –combinations of transportation modes and routes uInformation –data and analysis regarding inventory, transportation, facilities throughout the supply chain –potentially the biggest driver of supply chain performance uSourcing –functions a firm performs and functions that are outsourced uPricing –Price associated with goods and services provided by a firm to the supply chain

2-3 A Framework for Structuring Drivers

2-4 Facilities uRole in the supply chain –the “where” of the supply chain –manufacturing or storage (warehouses) uRole in the competitive strategy –economies of scale (efficiency priority) –larger number of smaller facilities (responsiveness priority) uComponents of facilities decisions

2-5 Components of Facilities Decisions uLocation –centralization (efficiency) vs. decentralization (responsiveness) –other factors to consider (e.g., proximity to customers) uCapacity (flexibility versus efficiency) uManufacturing methodology (product focused versus process focused) uWarehousing methodology (SKU storage, job lot storage, cross-docking) uOverall trade-off: Responsiveness versus efficiency

2-6 Inventory: Role in the Supply Chain uInventory exists because of a mismatch between supply and demand uSource of cost and influence on responsiveness uImpact on –material flow time: time elapsed between when material enters the supply chain to when it exits the supply chain –throughput »rate at which sales to end consumers occur »I = RT (Little’s Law) »I = inventory; R = throughput; T = flow time »Inventory and throughput are “synonymous” in a supply chain

2-7 Inventory: Role in Competitive Strategy uIf responsiveness is a strategic competitive priority, a firm can locate larger amounts of inventory closer to customers uIf cost is more important, inventory can be reduced to make the firm more efficient uTrade-off

2-8 Components of Inventory Decisions uCycle inventory –Average amount of inventory used to satisfy demand between shipments –Depends on lot size uSafety inventory –inventory held in case demand exceeds expectations –costs of carrying too much inventory versus cost of losing sales uSeasonal inventory –inventory built up to counter predictable variability in demand –cost of carrying additional inventory versus cost of flexible production uOverall trade-off: Responsiveness versus efficiency –more inventory: greater responsiveness but greater cost –less inventory: lower cost but lower responsiveness

2-9 Transportation: Role in the Supply Chain uMoves the product between stages in the supply chain uImpact on responsiveness and efficiency uFaster transportation allows greater responsiveness but lower efficiency uAlso affects inventory and facilities

2-10 Transportation: Role in the Competitive Strategy uIf responsiveness is a strategic competitive priority, then faster transportation modes can provide greater responsiveness to customers who are willing to pay for it uCan also use slower transportation modes for customers whose priority is price (cost) uCan also consider both inventory and transportation to find the right balance

2-11 Components of Transportation Decisions uMode of transportation: –air, truck, rail, ship, pipeline, electronic transportation –vary in cost, speed, size of shipment, flexibility uRoute and network selection –route: path along which a product is shipped –network: collection of locations and routes uIn-house, outsource, 3PL uOverall trade-off: Responsiveness versus efficiency

2-12 Information: Role in the Supply Chain uThe connection between the various stages in the supply chain – allows coordination between stages uCrucial to daily operation of each stage in a supply chain – e.g., production scheduling, inventory levels

2-13 Information: Role in the Competitive Strategy uAllows supply chain to become more efficient and more responsive at the same time (reduces the need for a trade-off) uInformation technology

2-14 Components of Information Decisions uPush (MRP) versus pull (demand information transmitted quickly throughout the supply chain) uCoordination and information sharing uForecasting and aggregate planning uEnabling technologies –EDI –Internet –ERP systems –Supply Chain Management software

2-15 Sourcing: Role in the Supply Chain uSet of business processes required to purchase goods and services in a supply chain uSupplier selection, single vs. multiple suppliers, contract negotiation

2-16 Sourcing: Role in the Competitive Strategy uSourcing decisions are crucial because they affect the level of efficiency and responsiveness in a supply chain uIn-house vs. outsource decisions- improving efficiency and responsiveness uExample 3.6: Cisco outsources low-end products to low cost producers in China for efficiency but uses contract manufacturers in US for high-end products for responsiveness.

2-17 Components of Sourcing Decisions uIn-house versus outsource decisions uSupplier evaluation and selection uProcurement process uOverall trade-off: Increase the supply chain profits

2-18 Pricing: Role in the Supply Chain uPricing determines the amount to charge customers in a supply chain uPricing strategies can be used to match demand and supply

2-19 Sourcing: Role in the Competitive Strategy uFirms can utilize optimal pricing strategies to improve efficiency and responsiveness uLow price and low product availability vs. vary prices by response times

2-20 Components of Pricing Decisions uPricing and economies of scale uEveryday low pricing versus high-low pricing uFixed price versus menu pricing uOverall trade-off: Increase the firm profits

2-21 Obstacles to Achieving Strategic Fit uIncreasing variety of products uDecreasing product life cycles uIncreasingly demanding customers uFragmentation of supply chain ownership uGlobalization uDifficulty executing new strategies